Energy and mobile phone contracts rife with unfair contract terms

Catching up with the ACL

Last updated: 03 February 2015

Unfair terms in consumer
contracts have been banned
since the introduction of the
new Australian Consumer
Law (ACL) in 2011.
But they don't seem to have
disappeared. Mobile phone and energy
contracts still appear to have plenty of
them, including terms that allow
electricity suppliers to raise your rates
mid-contract.

And when it comes to mobile phones and other telco services, unfair contracts are standard fare, according to the Australian Communications Consumer Action Network (ACCAN). That's probably why the Telecommunications Industry Ombudsman (TIO) has received about 1200 complaints a year about unfair mobile phone contracts over the past three years.

What's an unfair contract
term, anyway?

Under the ACL, an unfair contract term
is one that:

would cause a significant imbalance in
the parties' rights and obligations
arising under the contract

is not reasonably necessary to protect
the legitimate interests of the party
who would be advantaged by the
term, and/or

would cause detriment (whether
financial or otherwise) to a party
if it were to be applied or relied on.

You don't have to look far to find terms
in mobile phone contracts and energy
contracts that appear to fit that
definition. For example, Energy
Australia's 52-page market retail contract
says it can:

vary the tariffs and charges set out in a
contract, or introduce new tariffs and
charges, "for any reason"

discontinue any discounts, rebates
or other benefits in a contracted plan
if the network tariff changes (even
though energy customers have no
control over tariff rates)

absolve itself of responsibility for any
loss or damage that occurs due to total
or partial failure to supply energy to
your premises.

In effect, Energy Australia, along with
other electricity suppliers, reserves the
right to change the terms of the contract
midstream at the customers' expense.
However, the terms in question, which are
standard in many energy contracts, have
not been tested by a court of law.

An Energy Australia spokesperson told
us the terms and conditions "align with
state and federal regulations
and consumer protection laws,
and are fair and balanced to
ensure our customers
understand what protections
and rights they have when they
sign up with us".

The trouble with
mobile phone contracts

In 2013, ACCAN released
a report on unfair contract
terms forced on customers
by telecommunication
businesses including Telstra,
Optus and Vodafone. There
was no shortage of terms that
might be considered unfair in
mobile phone contracts.

Many gave the telco, but
not the consumer, the right
to change the deal after the
contract was signed, a tactic
known as unilateral variation.
In fact, many of the
contracts ACCAN reviewed
gave telcos the right to change
any terms they wanted mid-contract,
including those
having to do with monthly
access fees, minimum
monthly fees, termination and default
fees, call or data rates, download limits
and the actual features of the service.

And the changes could be made at any
time, under any circumstances, and to
any degree.
One of the worst culprits was the
internet service provider Netspeed,
whose contract said it could "change
prices or services at any time without
prior notice to customers or the public" as
well as "terminate any account at any time
with or without cause or reason".

It also required customers to
agree to indemnify Netspeed
against liability of any kind.
ACCAN alerted the
ACCC to these contract
terms, and they were ruled
unfair by the Federal Court
in 2013.
Both Telstra and Optus made slight
changes to the wording in their contracts
following the ACCAN review, while
Vodafone clarified a few points.

But all the telcos defended their right to unilaterally change the terms mid-contract.

Unfair contract complaints

Complaints to the TIO about "poor
information" in Telstra and Optus
contracts dropped noticeably (by 20% and
37%) between 2011–12 and 2012–13. But
there are still plenty of contract
complaints coming in – 5289 against
Telstra and 3249
against Optus
in 2012–13
alone.

And
overall
complaints
specifically
relating to unfair
contract terms
have remained
steady at an average
of about three per day for
the past three years,
according to ombudsman
Simon Cohen.
"If a consumer complains
to the TIO about their telco
making a unilateral contract
change, we will review the
contract terms and also look
at whether the provider has
acted fairly," Cohen told us.

"Things we consider are
whether the contract allows
for a unilateral change, and
whether the contract's terms
are fair or unfairly balanced
in the telco's favour. We ask
what notice of any change
has been given, the impact
on the consumer, and
whether other options
have been made available."

If the TIO decides a
contract term is unfair,
Cohen says the resolution
"may include allowing the
consumer to exit a contract
without any penalty, or
requiring the telco to comply with the
original terms of the contract".

Power imbalance in
energy contracts

The Victoria-based Consumer Utilities Advocacy Centre has been
pushing for an end to unilateral
variation in energy contracts, which
allow energy suppliers to increase tariffs
any time they want, even for fixed-term
contracts.

"Consumers can spend time shopping
around to find the best value deal and
sign a contract, only to find the retailer
can notify them straight away that it
intends to increase the tariff," the Centre
says.

"Good deals can quickly turn
into expensive deals, and because the
customers have signed a fixed-term
contract, they're likely to face an exit
fee if they wish to change retailers."

In a recent survey of 507 Victorians,
86% said unilateral variation was unfair
and 94% supported new regulations that
would ban it. The trouble for consumers is
that it takes a court proceeding to declare
a contract term unfair. If that happens, the
term will be struck from the contract,
but the contract will otherwise remain valid.

Making a complaint

Who do you turn to if you believe
you've signed a contract with an unfair
term? The ACCC, ASIC and state and
territory consumer protection
agencies all have enforcement duties
with regard to unfair contract terms
– or you can take a service provider to
court yourself.

ASIC has jurisdiction if
it's a financial product; the other
agencies are empowered to step in in
the case of other goods and services.
It may not be a straightforward
process, and you may have to pay for
legal help. The ACCC, for instance,
doesn't act on individual complaints
but may add your case to its files.

We
asked Consumer Affairs Victoria if it
handles complaints about energy
contracts and were told to contact
Victoria's Energy and Water
Ombudsman. Yet the ombudsman
service said it doesn't handle these.
NSW Fair Trading told us it's up to the
customer to try to resolve the issue
with the provider as a first step.

If that
doesn't work you can a lodge a
complaint, and Fair Trading will act as
an "informal negotiator", but it can't
make a decision that a term is unfair, a
spokesperson said. If the agency
thinks your complaint calls for
investigation, it can seek a declaration
from the Supreme Court that a
contract term is unfair.

If no such
declaration is forthcoming, you can:

make an application to the NSW Civil
& Administrative Tribunal (or the
equivalent agency in your state), or

make an application to the Supreme
Court for a declaration that a
contract term is unfair, but only with
the leave of the court. Fair Trading
says you should seek legal advice if
you're considering this option.

ACCC
takes on AGL

In December 2013, the ACCC
initiated a legal case against
AGL South Australia. "AGL SA
represented to consumers that if
they entered into an energy plan,
they would receive a specified
discount off the charges they would
otherwise pay AGL SA," chair Rod
Sims said. "However, AGL SA later
increased the rates charged to
consumers under energy plans
and, despite representing that the
discounts would continue, the level
of discounts that consumers had
signed up to was eroded."

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